The financial planning guides for young people produced by the Swiss bank UBS contemplate the creation of three pillars of savings. The first, for extraordinary expenses. “We recommend setting aside the equivalent of between 6 and 12 months of salary, to be able to face the possible loss of work or unforeseen expenses,” they point out. The second pillar would be to save in the medium term for quantifiable and predictable expenses and more risk can be assumed. The third is the forecast savings, to complete the public pension.
For this third pillar, it is essential to start making contributions as soon as possible. Being very long term, you can take more risks, which in the long run makes a difference. According to a simulation carried out by Abante Asesores, a 35-year-old who has 5,000 euros saved for retirement could accumulate assets that provide him with a monthly income of 1,571 euros. To achieve this, you should save 150 euros per month up to 45 years. Between 45 and 55 it should go up to 400 euros in monthly savings. And reach 600 euros of monthly savings between 55 and 67 years.
In addition to this important effort, the person should look for a product that allows them to obtain an average annual profitability of inflation plus 5%, a somewhat ambitious objective that requires a dose of risk. As a reference, individual pension plans that invest in the Stock Market have achieved an average annual return, discounting commissions, of 8% over the last decade, according to Inverco data.
The ING Naranja 2020 pension plan has a 40% profitability accumulated in 5 years. It adapts to the life cycle of the saver. It has 76% of the Stock Market and 24% of fixed income, but in the end it will have everything in bonds.
Megatrends Funds. This type of vehicle invests in companies that are going to take advantage of secular dynamics of the world economy, such as the rise of digitization, the expansion of green energies, the aging of the population or progressive urbanization. The CaixaBank Selección Megatendamientos fund, for example, has achieved an average annual return of 14.4%. And the CaixaBank Comunicación fund (which has mainly technology companies) has an average annual return of 21.4% in the last five years.
The bottom Quality Best Ideas from BBVA, which in turn invests in other mega-trend funds, has managed to rent more than 10% per year in the last decade. Another attractive megatrends fund is the Imantia New Future, which accumulates a 43% return in two years.
If instead of a stock fund you opt for a very low risk fund (for example, a vehicle that allows you to obtain 1% more than inflation), the annual income that you would obtain with 67 years would be only 6,872 euros. With a mixed fund (inflation + 3%) it could reach 11,400 euros per year.
Lifecycle. Some funds have a target date and adapt their portfolio. This is the case of BBVA My Goal 2031. The first years it has maximum exposure to the Stock Market and in the final part it softens it. The same logic is behind the ING Naranja 2040 pension plan, which in the last five years has accumulated a profitability of 40%.